Chemed Corp. (NYSE:CHE) Q2 2018 Earnings Conference Call - Final Transcript

Jul 26, 2018 • 10:00 am ET

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Chemed Corp. (NYSE:CHE) Q2 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good day, ladies and gentlemen and welcome to the Q2 2018 Chemed Corporation Earnings Conference Call. (Operator Instructions)

I would now like to introduce your host for today's conference, Sherri Warner, IR. You may begin.

Executive
Sherri Warner

Good morning. Our conference call this morning will review the financial results for the second quarter of 2018 ended June 30, 2018.

(Forward-Looking Cautionary Statements)

I would now like to introduce our speakers for today; Kevin McNamara, President and CEO of Chemed Corporation; Dave Williams, EVP & CFO of Chemed; and Nick Westfall, CEO of Chemed's VITAS Healthcare Corporation subsidiary.

I will now turn the call over to Kevin McNamara.

Executive
Kevin McNamara

Thank you, Sherri. Good morning. Welcome to the Chemed Corporation's second quarter 2018 conference call. I will begin with highlights for the quarter and David and Nick will follow up with additional operating detail. I will then open the call up for questions.

Our second quarter of 2018 had excellent operational performance, margin improvement and overall financial results in both operating segments. In the quarter, Chemed generated revenue of $442 million, an increase of 6.4%. Our consolidated net income in the quarter, excluding certain discrete items, generated adjusted earnings per diluted share of $2.81, an increase of 30.7%.

Both, VITAS and Roto-Rooter performed well, exceeding the high end of our key operational and financial estimates. VITAS' admissions increased 3.4% in the quarter, average daily census expanded 7.6%, and our adjusted EBITDA excluding Medicare Cap increased 1.9%. Roto-Rooter continues to show excellent results in our core plumbing and drain cleaning service segments, as well as continued growth in water restoration.

With that, I would like to turn this teleconference over to David Williams, our CFO.

Executive
Dave Williams

Thank you, Kevin. First, let's remind everyone of some housekeeping matters that we talked about in the first quarter. As most of you are aware, effective January 1, 2018, the Financial Accounting Standards Board, or FASB, mandated certain changes in revenue recognition under Generally Accepted Accounting Principles, otherwise referred to as GAAP. For Chemed, this accounting standard mandated the reclassification of certain costs within the 2018 income statement when compared to prior year formats. This revenue recognition accounting standard was adopted on a modified retrospective basis. This means, our 2017 operating results were not restated and are reported using historical revenue recognition accounting standards.

It's important to note, though, that these reclassifications have zero impact on EBITDA, adjusted EBITDA, pretax income or net income. These reclassified expenses do impact comparative analysis between years on certain metrics, such as sales, gross margin and selling, general and administrative expenses. This resulted in the reclassification of net room and board expenses associated with certain Medicaid patients residing in nursing homes to be reclassified from cost of services to revenue, effectively reducing VITAS' quarterly revenue and cost of sales by approximately $2.7 million.

In addition, uncollectible accounts receivable, commonly referred to as bad debt expense, historically had been included in selling, general and administrative expenses for both VITAS and Roto-Rooter. These are now netted in service